My father, brother and I share ownership of mineral intersts in Cleburne County, Arkansas. My brother and father have signed leases, but I have not. The AOGC integrated my interests four years ago which included specific provisions for bonus and royalty. I just recently found out that the well has been producing continuously for over 4 years now, and none of us have received a penny. My father was only recently offered a lease with XTO energy, the current operator, when it was discovered that he was left out of the original title/heirship process by the former operators/petitioners.
I have recently composed a formal demand letter to XTO Energy, holding them responsible, as the sole operator, for all sums currently owed to me - including 12% per annum accrued interest - per the AOGC integration order and Arkansas Title Codes 15-74-601 through 15-74-604.
Upon looking more closely at my father's lease, not only did XTO backdate the effective date of the lease to two months prior to the integration order, but I read a provision in it that allowed XTO to deduct "all costs incurred by Lessee in delivering, processing, or compressing" all gas produced.
Now, Upon researching legal precedent for "lawful deductions", the case most often, and recently, cited was Hanna Oil& Gas Co. v. Taylor,759 S.W.2d563 (Ark. 1988). This Supreme Court ruling established that while Arkansas has yet to explicitly state that the Lessee is required to bear all costs incurred in obtaining a "marketable product", it did rule that the compression costs, which were in question, are not deductible.
The 2011 Annual AAPL Meeting in Boston also established the following:
“Marketable Product” Rule
Minority Rule.
Colorado, Oklahoma, Arkansas, Kansas.
Lessee bears all of the costs associated with production
and transforming into a marketable product.
Only after gas has reached “marketable condition” can
post-production costs be deducted.
View that leases are silent as to allocation of post-
production costs and “at the well” is ambiguous
When lease refers to “gross proceeds” or “proceeds” at the well, sharing of post-production costs is not permitted.
Once gas reaches a “marketable
condition,” additional costs to improve or
transport the product may be shared.
Burden on lessee to demonstrate “marketable
condition.”"
Now, after scouring every Arkansas law, regulation, and statute I could find, it seems that the defining of allowable deductions is assumed to be dictated by the framework set aside in each individual two-party lease. And, after studying both the petition that One-Tec put to the commission, as well as the resulting order, there is no provision whatsoever as to royalty deductions of any kind.
So, my question would be: In my case, where no provisions concerning royalty deductions have been provided for, can ANY deduction, other than taxes, be defined as unlawful based on a "lack of clarity"? And, if additional deductions are taken, is that an issue that can be argued before the AOGC, or is that something that would have to be taken up with private litigation?